Allianz Investment has released its Q2 global market outlook. Its core view remains that "the situation is distorted but not broken," with the global economy continuing to show resilience, supported by strong investment in artificial intelligence (AI), which has become a key pillar of growth, particularly in the United States. However, rising energy costs could keep inflation above central bank targets in several major economies, thereby limiting the scope for monetary easing. The current expectation is that the Federal Reserve will not begin its next interest rate cut until the second half of 2026, while the Bank of England is likely to proceed cautiously. Rising energy prices are also a factor behind Allianz Investment's downward revision of its eurozone growth forecast. Additionally, although the US dollar has appreciated in the short term due to safe-haven demand, the firm maintains a structurally cautious stance on its prospects. Allianz Investment noted that as global markets enter the second quarter of 2026, the situation is more complex than many had anticipated at the start of the year. The conflict in the Middle East has added a new layer of geopolitical uncertainty, which could pose a significant test for the global economy. The outcome will depend on the duration of the conflict and the extent of disruption to energy markets. While the impact remains uncertain, the conflict has heightened risks to both growth and inflation, particularly for energy-import-dependent economies in Europe and Asia. Allianz Investment believes an oil price range of $90 to $110 per barrel is manageable; the greater risk lies in prices remaining elevated for an extended period, thereby increasing stagflation risks—where inflation rises while economic growth slows—and challenging the prevailing "Goldilocks" economic narrative. This environment favors building resilience: constructing diversified portfolios and focusing on long-term objectives can help investors navigate short-term market volatility. Against this backdrop, Allianz Investment's asset class convictions emphasize selected duration, quality spreads, equity themes aligned with strategic autonomy (including defense), and AI enablers that will drive the next phase of technological transformation.
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